Insurance Commissioner Faces Skepticism

With the Legislature continuing to go slow in acting on his proposal for a California Earthquake Authority to offer homeowners’ quake insurance, the credibility of Insurance Commissioner Chuck Quackenbush is under scrutiny.

Earlier in the year, Quackenbush frequently said that if the Legislature did not act by April 1, more than $1 billion in reinsurance commitments necessary to operate the agency would lapse and “the whole thing falls apart.”

Yet the deadline passed without action, and few of the commitments lapsed. Now Quackenbush suggests they may lapse unless action comes by May 1.

The insurance commissioner has tried to prod lawmakers into approval of the authority by saying companies are threatening not to renew 1 million homeowners policies this summer, a step tantamount to policy cancellation, unless they act.

Quackenbush has refused demands from consumer organizations that he name the companies making such threats, saying their officials spoke to him in confidence. This position drew a sharp rejoinder Tuesday from Betsy Imholz, a lobbyist for the Consumers Union.

“The commissioner’s job is to regulate the industry and to protect consumers, and we think providing that information to consumers who may be threatened with non-renewal would at least afford them an opportunity to search for other policies,” Imholz said.

She suggested that on the question of losing reinsurance commitments, Quackenbush’s comments “can’t be seen as anything but a bluff.”

Reinsurance is a means by which an agency offering insurance can protect itself against disaster losses beyond a prescribed level by paying a premium. In that case, the reinsurer comes to the rescue of the original insurer by paying the excess losses or part of them.

Quackenbush has said that without such commitments, the earthquake authority could not function.

After the chairman of the state Senate’s insurance committee, Herschel Rosenthal (D-Los Angeles), also skeptically asked the commissioner to document the threats of the loss of reinsurance commitments after his April 1 deadline was missed, Quackenbush replied testily on April 3:

“I have stated repeatedly the April 1 ‘deadline’ was not some sort of arbitrary bluff designed to ‘jam’ the Legislature.

“As of April 1, the reinsurance carriers that had committed to provide reinsurance for the CEA no longer have a contractual commitment to us,” Quackenbush said in a letter to Rosenthal.

“My staff and I are working to keep the reinsurance community on board while the Legislature debates the CEA. As the next few weeks unfold, I will be happy to inform you, in writing, of every reinsurance commitment that ‘disappears,’ but please understand that reinsurers are under no legislative obligation to inform us that they no longer wish to be involved beyond April 1.”

Last week, a Quackenbush deputy, Richard Wiebe, said reinsurance commitments since April 1 have diminished from $1.8 billion to about $1.5 billion, and “the only reason we’ve held on to the commitments we’ve had is that the Legislature made extraordinary progress in late March.”

Gina Calabrese, a lawyer for the Proposition 103 Enforcement Project, said the reason her organization and Consumers Union oppose creation of the earthquake authority is that they believe it represents a bailout for the industry and, ultimately, less protection for policyholders.

Besides, Calabrese and Imholz said, a recent Consumers Union survey of escrow brokers found most saying there is, at present, no real crisis in obtaining earthquake coverage without the authority.

Yet outright rejection of the authority apparently does not command a majority in the Legislature, where some staff members said this week they believe it is possible a compromise measure could emerge in as little as two weeks.

Others are not so certain the issue won’t drag on beyond May 1.

Some staff members speculate that even legislators favoring the authority are skeptical about Quackenbush’s deadlines and are prepared to continue maneuvers, perhaps with a view of engendering more campaign contributions from the insurance industry before passage.